The Implications of Product Architecture on the Firm - American ...

THE IMPLICATIONS OF PRODUCT ARCHITECTURE ON THE FIRM 123Table I. Overview <strong>of</strong> Research Questions Discussed in the Paperis worth noting that for some <strong>of</strong> these questions listedin Table I, a considerable amount <strong>of</strong> research has alreadytaken place (e.g., impact <strong>of</strong> product architectureon product development lead-time and cost), whileother questions are less researched (e.g., impact <strong>of</strong>product architecture on organizational design or marketingfunctions).4. BUSINESS ASSETSThis section explores the influence <strong>of</strong> product architectureon three kinds <strong>of</strong> business assets: knowledge portfolio,product portfolio, and brand portfolio. 6 Byknowledge portfolio, we mean all knowledge that resideswithin the firm, whether stored physically orwithin individuals, and the learning tools <strong>of</strong> the firm thatultimately help the firm remain competitive. A firm’sproduct portfolio consists <strong>of</strong> all products available inthe marketplace at any given time, and the brand portfoliois the grouping <strong>of</strong> all brands associated with aproduct by the consumer during the purchase decision.4.1. Knowledge PlanningKnowledge is the ability to make good decisions basedon an understanding <strong>of</strong> causal relationships. Learninghappens as information—structured data—is used toadvance the understanding <strong>of</strong> a system [Bohn, 1997].<strong>The</strong>re are two basic kinds <strong>of</strong> learning that developproduct, process, and market knowledge: acquisitiveand experimental [Lei, Hitt, and Bettis, 1996; Zahra,6 Physical assets, such as infrastructure, are not included here, but canbe easily accounted for in the processes layer.Melson, and Bogner, 1999]. Acquisitive learning (exogenouslearning according to Lambe and Spekman[1997]) takes place when the firm “acquires and internalizesknowledge” from the outside, such as the casewith technology partnerships [Duysters, Kok, andVaandrager, 1999; Nijssen, Reekum, and Hulsh<strong>of</strong>f,2001] or technology outsourcing [Howells, 1999,Kimzey and Kurokawa, 2002]. Experimental learningoccurs within the firm and generates new and distinctiveknowledge for the organization, which <strong>of</strong>ten leads tothe development <strong>of</strong> core competencies [Prahalad andHamel, 1991]. In order to remain competitive, firmsmust not only manage the development <strong>of</strong> strategicknowledge, but also develop ways to retain and cascadea portfolio <strong>of</strong> knowledge throughout the firm.Knowledge has been classified in various ways [Polanyi,1967; Henderson and Clark, 1990; Nonaka,1994; Spender and Grant, 1996]. One classification <strong>of</strong>special interest to this paper is between component andarchitectural knowledge [Henderson and Clark, 1990;Henderson and Cockburn, 1994]. Component knowledgecould be explicit or tacit and reside within anindividual or an organization; but architectural knowledgeis generally tacit and stored within a larger systemor group [Garud and Nayyar, 1994; Matusik and Hill,1998]. 7 Architectural knowledge is created in two ways.<strong>The</strong> first method is through defining the interfacesbetween modules as discussed in Section 2. Sanchez[2000, p. 611] noted that “trying to fully specify the7 Explicit knowledge refers to knowledge that can be easily articulated,captured, and transferred. Tacit knowledge is just the oppositeand can only be acquired through experience [Nonaka, 1994; Polanyi,1967].Systems Engineering DOI 10.1002/sys

THE IMPLICATIONS OF PRODUCT ARCHITECTURE ON THE FIRM 125ety: strategic and tactical. Strategic variety refers to theperceivable differences in products from the consumer’sperspective [Martin and Ishii, 1996]. Strategicvariety comes in two forms, variegation and differentiation[Ramdas, 2002]. Variegation refers to the varietydisplayed within a single firm’s portfolio, and differentiationrefers to the variety displayed between a singlefirm’s products and all other competing products. <strong>The</strong>variegation displayed within the portfolio at a particularpoint in time has been called spatial variety and overtime as generational variety [Martin and Ishii, 2002].Alternatively, tactical variety refers to differences betweenproducts that are not obvious to the consumer[Martin and Ishii, 1996], but are necessary for at leastone <strong>of</strong> the following reasons [Kota, Sethuraman, andMiller, 2000]: (1) varying component packaging constraintswithin a variant; (2) implementation <strong>of</strong> newtechnology; and (3) the “idiosyncrasies” <strong>of</strong> independentdesign teams.A family <strong>of</strong> products is tied together by its “core” set<strong>of</strong> shared components, <strong>of</strong>ten referred to as the platform.In order to develop the product portfolio efficiently,businesses must develop good platforms by carefullyaligning the product plan, differentiation plan, and commonalityplan [Robertson and Ulrich, 1998]. <strong>The</strong> productplan describes, at a conceptual level, what productswill be delivered to market segments identified as importantto developing the business. <strong>The</strong> differentiationplan describes how the new products will be differentfrom either existing or soon to be released products.Conversely, the commonality plan defines which productelements (subassemblies, subsystems, components,etc.) will be common across portfolio members. <strong>The</strong>sethree plans are essential to ensure that markets exist fornew products, the new products can be designedquickly, and there is sufficient component sharing tohelp create economies <strong>of</strong> scale. Businesses use productarchitecture to efficiently and economically develop theproduct variants that are believed to help increase thevalue <strong>of</strong> their portfolio. Families <strong>of</strong> products 8 generallysolve the same type <strong>of</strong> problem for the consumer, yeteach product exhibits different attribute performancelevels [Li and Azarm, 2002].New products <strong>of</strong>ten make old products obsolete andmay even cannibalize sales <strong>of</strong> existing products [Conner,1988]. Introduction strategies for low- and highendproducts are yet another product planningconsideration. For example, should a low-end productthat fulfills needs similarly to that <strong>of</strong> a high-end productbe introduced before, concurrently, or after its high-endcounterpart [Baldwin and Clark, 2002; Moorthy and8 <strong>Product</strong>s coming from a family architecture as discussed earlier inSection 3.Png, 1992]? Some researchers note that the pace <strong>of</strong>product releases and the amount <strong>of</strong> variety among itsproducts are two important dimensions that influencehow firms plan products [Sanderson and Uzumeri,1997; Fisher, Jain, and MacDuffie, 1996]. If the firm isin an industry where the pace <strong>of</strong> product releases is slowand only small amounts <strong>of</strong> variety are needed to remaincompetitive, it is probably not advisable for the firm topursue a platform strategy as demonstrated in Figure 2.When a quick pace for introducing new products isrequired and/or a large amount <strong>of</strong> variety is required tocompete, platforming concepts begin to make sense.<strong>The</strong> most important aspect <strong>of</strong> a platform philosophy isflexibility—how much and <strong>of</strong>ten can the platform adaptbefore it becomes obsolete [Gonzalez-Zugasti, Otto,and Baker, 2000].Hypothesis #3<strong>Product</strong> architecture (i.e., platform decisions) directlyaffects the firm’s ability to efficiently and effectivelymanage the product portfolio.<strong>The</strong> flexibility <strong>of</strong> the product architecture is seen tobe the key factor in determining the ability <strong>of</strong> a companyto create variety in its portfolio to meet dissimilarcustomer needs [Ramdas, 2002]. <strong>The</strong> increased flexibilityin a modular architecture design is <strong>of</strong>ten cited asone <strong>of</strong> the main benefits <strong>of</strong> the strategy. Drawing fromevolutionary theory, Baldwin and Clark [2000] claimedthere are essentially six ways that product managers canevolve their products through a modular architecture:splitting a design into modules, substituting one modulefor another, augmenting by adding a new module to thesystem, excluding a module from the system, invertingto create new design rules, and porting a module toanother system.Hypothesis #4A modular architecture is a key enabler for creatingdiversity in the firm’s product portfolio.4.3. Brand PlanningBranding provides continuity and reduces risk for consumersas they evaluate a set <strong>of</strong> branded products forpurchase [Hoyer and Brown, 1990; Roselius, 1971].Malaval [2001] listed the two major functions <strong>of</strong> brandsas positioning and capitalization. <strong>The</strong> positioning functionis to distinguish a company’s products from those<strong>of</strong> the competitors. <strong>The</strong> second function, capitalization,is a way for a company to increase the value <strong>of</strong> thebrand, which <strong>of</strong>ten enables the firm to charge a premiumfor their products. <strong>The</strong> brand therefore is a toolSystems Engineering DOI 10.1002/sys

126 YASSINE AND WISSMANNFigure 2. Pace and variety in relationship to product architecture. (Adapted from Sanderson and Uzumeri, 1997.)for communication that <strong>of</strong>ten adds value to the objectbeing considered for purchase [Farquhar, 1990]. Brandequity is a strength-measure <strong>of</strong> the consumer relationshipswith the firm’s products and services and is measuredby dimensions such as awareness, image, andloyalty [Malaval, 2001].A brand portfolio traditionally refers to all thebrands that are owned by a business, but there is increasingsupport to include all brands tied to a particularproduct in the consumer’s mind during the purchasedecision, whether those brands are owned by the primaryfirm’s brand or not [Lancaster, 1990]. Dacin andSmith [1994, p. 232] described two basic properties <strong>of</strong>a brand portfolio as “[t]he number <strong>of</strong> products affiliatedwith a brand and the variance in quality among thoseproducts.” Because creating consumer-brand relationshipsis <strong>of</strong>ten very costly, there is increasing pressure toleverage brands. Due to these pressures, brand managershave created complex strategies, involving multiplebrands that strive to extend or endorse other brands. <strong>The</strong>discipline used to design the structure <strong>of</strong> brand roles andrelationships within a brand portfolio has been labeledbrand architecture [Aaker and Joachimsthaler, 2000;Lederer and Hill, 2001].One <strong>of</strong> the ways a product communicates its brandis through its components. It is <strong>of</strong>ten important that keycomponents are shared among a product family, abranded platform so to speak, as a way to “instill a sense<strong>of</strong> the brand gestalt” [Sudjianto and Otto, 2001, p. 2].Sharing components to communicate parent brand continuity,while attempting to maintain distinct subbranddifferentiation, is not easy. Commonality may reducecosts as discussed in Section 2, but it may also reducepr<strong>of</strong>it potential as products become too similar. <strong>The</strong>Sudjianto and Otto [2001] framework (shown in Fig. 3)explained when a component should be common orbrand-specific in the differentiation plan. For the productsinvestigated, Sudjianto and Otto [2001] found thatit was much easier to maintain brand differentiationwhen distinctive products were investigated for commonizationopportunities than when product variantswere developed using a common platform. <strong>The</strong>se observationslink the importance <strong>of</strong> product architecturedecisions to branding concepts.Brand management plays a major role in the abilityto use a single modular architecture across a range <strong>of</strong>market segments [Sanchez, 1999]. This may include thecreation <strong>of</strong> distinct brands whose performance mayvary to meet the needs <strong>of</strong> low-, mid-, and high-marketFigure 3. General guidelines for developing a commonalityplan (adapted from Sudjianto and Otto [2001]).Systems Engineering DOI 10.1002/sys

THE IMPLICATIONS OF PRODUCT ARCHITECTURE ON THE FIRM 127segments. If it is difficult to affect performance through“variety-enhancing components,” then opportunities tocreate variety through styling may be a way to createvariety. Either way, brand managers must be aware thata “low-quality” brand’s equity is related to the lowestqualityproduct in the family, but a “high-quality”brand’s equity is related to the quality <strong>of</strong> the highestqualityproduct in the family [Randall, Ulrich, andReibstein, 1998].Hypothesis #5Brand Managers must take care when using a platformproduct architecture to create a “low-quality”variant as there is a chance that the branded platform’sbrand equity may actually decrease.Some components can be grouped into a module,which creates a “brand signature” <strong>of</strong> its own. <strong>The</strong>semodules are referred to as branded modules [Sudjiantoand Otto, 2001]. An example <strong>of</strong> a branded module isFord’s PowerStroke diesel engine that is used in bothtrucks and vans, but has a common brand name thatcreates value in the mind <strong>of</strong> the consumer. <strong>The</strong> Intelcomputer chip, with the very effective Intel Inside brandstrategy, is another example <strong>of</strong> a branded module,which creates brand equity for an arguably archetypalcommodity and also adds value to the system-levelbrand that houses it [Schultz, 1998]. As modular architectures<strong>of</strong>ten enable fast-paced innovation, it seemsreasonable that branded modules may be an effectiveway to communicate incremental improvements at themodular level. Although brand-building has been seenas cost-prohibitive in the past, there is growing supportfor the use <strong>of</strong> short-term brands, especially as consumersexhibit growing willingness to try new brands [Herman,2000].Hypothesis #6Branded modules may be one way to communicatefast paced innovation at the modular level.5. STRUCTUREThis section explores the way product architecture influencesthe organization architecture and requirementsarchitecture. Organizational architecture describes (1)how decision rights are assigned within the organization,(2) the performance evaluation systems <strong>of</strong> bothindividuals and business units, (3) the methods <strong>of</strong> providingincentives or rewarding the individuals or unitsfor performing their requisite tasks effectively, and (4)what information and/or materials are to be transferredbetween agents [Jensen and Meckling, 1995; Milgromand Roberts, 1992; Robey, 1991]. <strong>The</strong> choice <strong>of</strong> organizationalarchitecture has direct implications on how theorganization manages complexity and on its ability toinnovate its products [Ulrich, 1995]. Alternatively, therequirements architecture describes how performancetargets throughout the product architecture relate toeach other. A solid understanding <strong>of</strong> how to cascaderequirements from the system level down to the componentsultimately helps to guide system designersthrough the multitude <strong>of</strong> trade-<strong>of</strong>f decisions that ariseduring product development.5.1. Organizational Design<strong>The</strong> purpose <strong>of</strong> organizational design is to create astructure that can effectively and efficiently execute therequisite tasks needed to execute business operationspr<strong>of</strong>itably [Galbraith, 1982]. Organizations function bytransferring information, energy, and materialsthroughout its network <strong>of</strong> agents called the organizationalarchitecture [Sah and Stiglitz, 1986]. <strong>The</strong>re aretwo types <strong>of</strong> modes <strong>of</strong> transfer between agents: internaland external. Internal transfers are exchanges <strong>of</strong> information,energy, and/or material within the firm boundaries,whereas external transfers are exchanges betweenagents residing in different firms. <strong>The</strong> costs associatedwith a transfer can be categorized as being either convenience,political, or distance. Internal transfers aregenerally less expensive as the agents within a singlefirm can make a transfer more conveniently becausespecial contracts are not needed, the agents usuallypossess similar objectives, and there is <strong>of</strong>ten closerspatial proximity requiring less “effort” to move physicalitems. External transfers are more expensive, notonly because the agents <strong>of</strong>ten have conflicting objectivesand the geospatial distances are larger, but alsobecause transaction costs are incurred when two firmsmust establish the transfer interface.Baldwin and Clark [1997, p. 92] pointed out that“[j]ust like a modular product that lacks good interfacesbetween modules, an organization built around decentralizedteams that fail to function according to a clearand effective framework will suffer from miscues anddelays.” Indeed, the ease <strong>of</strong> interaction between agentscould be viewed as a source <strong>of</strong> competitive advantageas transaction costs accumulate and innovation is impededas information flow is obstructed [Dyer and Chu,2003; Bendz and Lawson, 2001]. Figure 4 shows howmultifirm complexity and type <strong>of</strong> product architectureinfluence the costs <strong>of</strong> making transfers. Modular productarchitectures <strong>of</strong>ten reduce costs as they require lessfrequent and more defined transfers between agents (asdiscussed in Section 2), which explains why elementsSystems Engineering DOI 10.1002/sys

128 YASSINE AND WISSMANNFigure 4. Cost relationships between organizational architecture and product architecture.<strong>of</strong> a modular architecture can be outsourced more easily.Research in managing the essential elements <strong>of</strong>product architecture has revealed relationships withhow organizations are structured [Eppinger and Salminen,2001; Muffatto and Roveda, 2000; Sanchez andMahoney, 1996, 1997; Sosa, Eppinger, and Rowles,2003]. Morris and Ferguson [1993] argued that matchingthe organizational architecture to the product architecturereduces decision-making complexity byminimizing “vertical and horizontal debates.” However,before a dominant design has emerged, Kazanjian,Drazin, and Glynn [2000] noted that, very <strong>of</strong>ten, boththe original product and organizational architecture designsare based on a “fuzzy vision” <strong>of</strong> what the ultimateproduct will become. For this reason, the architecturaldesign for a new product cannot be known completelyat the onset, but emerges from a process <strong>of</strong> experimentation.After a dominant design has emerged, the organizationaldesign that becomes apparent <strong>of</strong>ten resemblesthat <strong>of</strong> the product architecture [Brusoni and Prencipe,2001]. 9 Once this organizational transformation happens(i.e., to parallel the product architecture), it becomesan impediment for large established firms toaccept and successfully implement new product architectures[Henderson and Clark, 1990]. As an example,the creation <strong>of</strong> a new integrated architecture for anautomotive instrument panel (which originally consisted<strong>of</strong> two separate modules, the climate control andradio, and was developed by two separate teams) hasfailed due to its misalignment with the existing organizationalstructure. <strong>The</strong> new integrated architecture requireda lot more interaction between the two existinggroups, which was not supported by the existing organizationalstructure.Hypothesis #7<strong>The</strong> organizational design will likely correspond tothe product architecture (or vice versa), because to do9 A similar argument is also noted in the design for integrationapproach proposed by Browning [1999].otherwise would increase transaction costs and contractcomplexit.5.2. Requirement CascadingDetermining system-level performance requirementsbegins with understanding the “voice <strong>of</strong> the customer”[Urban and Hauser, 1980]. 10 A complex product isgenerally decomposed into a hierarchical system withmultiple levels <strong>of</strong> interaction between the subsystems<strong>of</strong> which it is composed [Simon, 1962]. Cascadingrequirements is the process <strong>of</strong> strategically dictatingrequirements to elements lower in the product architecturehierarchy [Kim et al., 2003]. As the system-levelrequirements are mapped to elements lower in the architecturehierarchy, the system designers create therequirements architecture. Figure 5 shows how customerpreferences, strategic business initiatives, as wellas government regulations affect product/system requirements,and how the attribute targets are flowndownthrough the product architecture to create arequirement architecture [Austin, Mayank, and Shmunis,2006].Requirements flowdown remains a significant challengeto systems engineers as it is difficult to ensure thatsystem performance requirements will be met even ifsubsystem targets are met [Cook, 1997]. Indeed, especiallyin the case <strong>of</strong> a product that has an integral orpartially modular architecture, the system-level requirementsare invariably tied to several elements lowerin the architecture hierarchy [Chen et al., 1994]. It isthrough these subsystem performance targets that alternativedesigns are evaluated by the respective designteams, so it is important that the performance requirementshave the correct level <strong>of</strong> abstraction as to providecommon ground for comparing alternative designs[Kota, Sethuraman, and Miller, 2000]. Understandinghow the subsystem requirements are flown down10 <strong>The</strong> “voice <strong>of</strong> the customer” refers to the list <strong>of</strong> customer needs, ahierarchical structure <strong>of</strong> those needs, a set <strong>of</strong> importance weights toprioritize those needs, and competitor benchmark data. <strong>The</strong>se needsare usually translated into system level performance requirements.Systems Engineering DOI 10.1002/sys

THE IMPLICATIONS OF PRODUCT ARCHITECTURE ON THE FIRM 129Figure 5. Requirements flowdown. (Adapted from Cook, 1997.)through the product architecture hierarchy is importantbecause eventually the byproducts <strong>of</strong> various engineeringdesign groups (i.e., subsystems) will be integratedinto a single system.Hypothesis #8To ensure system integration is successful, the subsystemperformance requirements must be tied to system-levelrequirements that are valued by the endconsumer. Successful requirements cascading and systemintegration is greatly influenced by the productarchitecture.6. PROCESSESThis section explores the way product architecture influencesthe processes used to develop a firm’s products,how it influences the way products aremanufactured and distributed, and how it influences theway a firm executes the marketing function.6.1. <strong>The</strong> <strong>Product</strong>ion and DistributionConnectionHaving a competitive product portfolio is important, butequally as important is the ability to move those productsthroughout the supply chain with satisfactory servicelevels and to produce the products at a reasonablemanufacturing cost. <strong>Product</strong> variety can indeed addsignificant manufacturing costs to producing a productfamily [Child et al., 1991]. <strong>The</strong> ability <strong>of</strong> a business toproduce a diverse product portfolio efficiently is frequentlyattributed to manufacturing flexibility [Ulrich,1995; Gerwin and Kolodny, 1992], which is a function<strong>of</strong> first, the product architecture and, second, the technologywithin manufacturing plants, distribution centers,and throughout the supply chain structure[Ramdas, 2002]. Supply chain improvement effortshave focused primarily upon reducing inventory (workin-processand safety-stock) and reducing lead-time(time from manufacturing to market), as both increasethe pr<strong>of</strong>itability <strong>of</strong> the firm, especially if customers arewilling to pay for increased responsiveness. Producingproducts efficiently can lead to cost advantages over thecompetition.<strong>The</strong>re are other ways to increase firm pr<strong>of</strong>itabilitythrough production and distribution operations however.<strong>Product</strong> architecture influences how products areassembled; it influences how flexible those assemblyprocesses are to product changes; and it influences howproducts are distributed. Because product architecture<strong>of</strong>ten dictates how products are sequentially assembled,it directly affects the firm’s ability to delay the productdifferentiation point within the supply chain. Delayingthe point <strong>of</strong> variegation 11 means common work-inprocesscomponents are not committed until late in theproduction process when they are ultimately used to11 Variegation is differentiation within a single firm’s product portfolio[Ramdas, 2002].Systems Engineering DOI 10.1002/sys

130 YASSINE AND WISSMANNproduce multiple unique finished products [Lee andTang, 1997]. This means the “finishing” <strong>of</strong> a productmay not only happen within a production facility, butalso within distribution centers or even the point <strong>of</strong> sale,which helps to cope with market uncertainties andlower inventory for the same service level [Ramdas,2002]. When the point <strong>of</strong> variegation has been delayedeffectively, the firm can mass customize its products tomeet customer preferences for a reasonable price [Pine,1992; Pine, Victor, and Boynton, 1993].<strong>The</strong> overall flexibility <strong>of</strong> a manufacturing systemcan be measured by time and range [Slack, 1983]. Onthe time dimension, a production system is more flexiblethan another if it can change from one productionprocess to another more quickly; if it can be modifiedto produce more product variety more quickly; and if itcan scale to produce larger volumes more quickly.<strong>Product</strong>ion range can be broken down into seven dimensions:mix, changeover, modification, volume, rerouting,material, and flexible responsiveness [Gerwin,1993]. <strong>Product</strong> architecture influences many <strong>of</strong> thesedimensions as flexible product architectures lead t<strong>of</strong>lexible manufacturing, which ultimately makes conceptssuch as “mass customization” and “flexible processes”possible [Fisher, Ramdas, and MacDuffie., 1999;Fisher, 1997; Pine, Victor, and Boynton, 1993].Hypothesis #9<strong>The</strong> design <strong>of</strong> a production process is <strong>of</strong>ten mandatedby the product architecture. Designing productarchitectures with this in mind could lead to effectivestrategies for increasing service levels.6.2. <strong>The</strong> <strong>Product</strong> Development and DesignConnection<strong>Product</strong> development is the sequence <strong>of</strong> all the requiredactivities that a company must perform in order todevelop, produce, distribute, and sell a product [Ulrichand Eppinger, 1995]. <strong>The</strong>re are four metrics commonlyused to measure the performance <strong>of</strong> a product developmentproject: project time, project cost, product performance,and the cost to produce the product [Smithand Reinertsen, 1998]. <strong>The</strong>se metrics are usually conflicting.For example, if development time is decreased,the product performance may decrease, unit cost mayincrease, and overall project cost may increase or decrease,depending upon whether the reduced developmenttime was the result <strong>of</strong> an additional financialinvestment.<strong>The</strong> choice <strong>of</strong> product architecture influences each<strong>of</strong> the four product development project metrics[Browning, 2001, 2002]. In spite <strong>of</strong> the many benefitsmodular architectures <strong>of</strong>fer (as discussed in Section 3),integral products can <strong>of</strong>ten be developed quicker than amodular design to achieve the same function. Krishnanand Gupta [2001] noted that platforms are time-consumingto develop, which can result in delayed productlaunches <strong>of</strong> the first few derivatives. <strong>The</strong>re is thereforea trade<strong>of</strong>f decision regarding the long-term economicbenefit <strong>of</strong> using a platform strategy versus the possibleshort- and long-term effects <strong>of</strong> introducing productslate. In addition to being costly to design, modulardesigns <strong>of</strong>ten end up requiring more physical elements(more components, subassemblies, etc.) to obtain thesame level <strong>of</strong> functionality as a more integral design,resulting in a larger final product in terms <strong>of</strong> weight andvolume [Gonzlez-Zugasti, Otto, and Baker, 2000]. <strong>The</strong>reason why integral designs perform better on thesedimensions is because multiple functions are mappedto single design elements; so where a modular designwould have required three different elements, for example,a integral design may only need one, which lowersweight and volume. For this reason, when weight and/orvolume are critical product performance parameters(such as in an aircraft), an integral design <strong>of</strong>ten becomesa necessity, which results in product-specific components[Ulrich and Ellison, 1999].<strong>Product</strong> architecture helps to reduce the complexity<strong>of</strong> engineering design processes through system decompositionand integration. System decomposition isthe breaking down <strong>of</strong> a complex system into smaller and<strong>of</strong>ten easier to understand system elements, which alsocan <strong>of</strong>ten be decomposed even further. Decomposingthe design into smaller modules, with well-definedinterfaces and information needs, allows independentdesign teams to increase the pace <strong>of</strong> innovation <strong>of</strong>tenleading to reductions in total time needed to design thefinal product. System integration is the process <strong>of</strong> integratingmodules and verifying that they interact in adesired manner—<strong>of</strong>ten involving a process <strong>of</strong> “debugging.”Sage and Lynch [1998] present several principlesand perspectives to help further the understanding <strong>of</strong>systems integration. A modular architecture <strong>of</strong>ten enablesteams to test their modules <strong>of</strong>f-line making designintegration less time-consuming [Baldwin and Clark,1997].Another important aspect <strong>of</strong> product architecture asit relates to product development is the choice <strong>of</strong> technologyand the decision to introduce new technologyinto the next generation product. Usually, it is safer tointroduce the new technology into the product in amodular fashion; especially when the new technologyis untried and unproven. 12 On the other hand, new12 Safer in the sense that if last minute problems emerge with the newtechnology, then the development team can easily revert back to theold technology.Systems Engineering DOI 10.1002/sys

THE IMPLICATIONS OF PRODUCT ARCHITECTURE ON THE FIRM 131technology sometimes forces the product to take anintegral architecture due to a lack <strong>of</strong> complete understanding<strong>of</strong> this new technology; especially how itrelates to and impacts the rest <strong>of</strong> the product system. Asthe new technology matures and becomes more understood(i.e., in how it relates to the rest <strong>of</strong> the productsystem), then the possibility <strong>of</strong> a modular product architecturestarts to emerge.Hypothesis #10As products become more modular in nature, thedevelopment time increases for the first few artifacts,but decreases as interactions become better understood.Conversely, integral architectures are generallyused when time to market for the first variant is extremelyimportant, and as weight and volume constraintsbecome less flexible.6.3. <strong>The</strong> Marketing ConnectionMarketing processes focus on discovering strategic opportunitiesand developing value propositions to exploitthose opportunities in the marketplace. Marketers beginby defining critical-to-value attributes (discussed previouslyin Section 5.3) and segmenting the market in away such that product variants can be created to addressthe unique needs <strong>of</strong> the customers within each segment.After the products are designed and ultimately produced,marketing is then responsible for informing theconsumers <strong>of</strong> product benefits and inducing them topurchase through product promotion and pricing.<strong>Product</strong> architecture influences these traditionalmarketing functions in several ways [Baldwin andClark, 1997; Vollerthun, 2002]. A modular architectureinfluences the way firms conduct marketing researchand create marketing strategies; it can shift productdifferentiation control from the producer to consumer;and it may even influence the traditional “boundaries”<strong>of</strong> the marketing organization because <strong>of</strong> the need todefine and manage the strategic roles <strong>of</strong> modular components[Sanchez, 1999].Marketing researchers with potentially modularproduct concepts must help to optimize the flexibility<strong>of</strong> modular architectures so they are able to create aportfolio <strong>of</strong> products to delight the customers withineach <strong>of</strong> the market segments identified [Sanchez, 1995].Marketing researchers also must clearly understandhow component-based product variety affects the valueproposition for products within each market segment[Porter, 1985; Ramdas, 2002; Sanchez, 1999, 2003]because increasing product variety does not guaranteepr<strong>of</strong>its in the long run, and may even decrease firmcompetitiveness [Lancaster, 1990; Ramdas and Sawhney,2001]. As system-level performance metrics arecascaded down through the product architecture, thearchitectural elements ultimately take on one or a combination<strong>of</strong> strategic roles as was described at the end<strong>of</strong> Section 5.2. <strong>The</strong> marketing team plays a key role increating the module-based strategy for system-levelperformance metric evolution by dictating the timingand scope <strong>of</strong> modular performance improvements[Sanchez, 1996, 1999]. In other words, it is necessaryfor the marketing function to be involved in productarchitecture decision-making in order for the marketingplan to be appropriately reflected in the product architecture(particularly the level <strong>of</strong> modularity required t<strong>of</strong>ulfill market needs). Very <strong>of</strong>ten, marketing must lookat what products are already in the portfolio and see howthey can be adapted to maintain or develop a competitiveedge. Sometimes the target market is stratified in away that the only way to effectively cater to the marketis to design an adaptable product architecture. For thisreason, the early involvement <strong>of</strong> the marketing functionshould make the architecting process more effective.Hypothesis #11Marketing’s level <strong>of</strong> involvement in product architecturedesign is related to the level <strong>of</strong> modularityneeded to fulfill market needs.<strong>Product</strong> architecture not only affects the role <strong>of</strong> themarketing team, but it also can affect the way they dotheir research [Sanchez, 1999]. Marketing research triesto ascertain customer preferences with a small upfrontinvestment before committing to the larger investment<strong>of</strong> designing the product itself. Due to the small samplesizes typically used, the accuracy and results <strong>of</strong> traditionalmarketing studies <strong>of</strong>ten fall into question. <strong>The</strong>results must also be questioned when customers areforced to reveal their preferences based on imaginaryproducts or concepts rather than based on a physicalexperience [Hoeffler, 2003]. A solution to these issues,which can be used with flexible product architecturesand complements tradition marketing research methods,is to conduct real-time marketing research[Sanchez and Sudharshan, 1993]. Real-time marketingresearch starts by producing low-cost variants in smalllot sizes that leverage flexible product architectures toobserve the consumer’s reaction directly by how theyspend their money. <strong>The</strong> solution becomes to producemore <strong>of</strong> what the consumers show they want, rather thanwhat they say they want.Marketing teams are also <strong>of</strong>ten faced with difficultdecisions concerning implementing new technologies.Cooper and Kleinschmidt [1987, p. 217] demonstratedthat “product superiority in terms <strong>of</strong> unique features,innovativeness, and performance is a key factor thatdifferentiates new product winners and losers.” Imple-Systems Engineering DOI 10.1002/sys

132 YASSINE AND WISSMANNmenting new innovations is not without risk, however.It is <strong>of</strong>ten difficult to know if a new technology has beenadequately tested and validated to ensure robust performancein the field. Releasing unreliable productsmay cause significant damage to consumer sentimentand brand equity. For this reason, managers <strong>of</strong>ten “playit safe” by favoring incumbent technology and processesthat favor an incremental approach [Morgan andDaniels, 2001]. When choosing technology for platforms,an incumbent technology increases the probability<strong>of</strong> developing robust product variants, but thisdecision must be balanced against the revenue generatingpotential <strong>of</strong> a new technology [Gonzalez-Zugasti,Otto, and Baker, 2001; Krishnan and Bhattacharya,2002].Hypothesis #12Flexible product architectures allow firms to rapidlytest the commercial success <strong>of</strong> new technology withoutthe need to make large investments in entirely newproduct designs.7. SUMMARY AND CONCLUSION13 <strong>The</strong> authors thank one <strong>of</strong> the reviewers for pointing this out to ourattention.This paper presented a framework that shows howproduct architecture decisions affect the firm from asystems perspective. Although much research has beenconducted in each <strong>of</strong> the eight domains surrounding theproduct architecture domain, some links between thesedomains and product architecture have been discussedmore in the literature than others and thus present anopportunity for further research and investigation. Ingeneral, we found that the links to the consumer perspectiveregions have been the least analyzed <strong>of</strong> theeight. <strong>The</strong>re are several possible explanations for this:(1) It may be difficult to formulate research questionsand/or demonstrate results when considering thesetypes <strong>of</strong> architecture decisions; (2) the intersectionsmay not be thought to be important by many; or (3) theintersections may not have been identified. This paperaddressed problems two and three directly, but it stillmay be difficult to formulate research questions orobtain results in these areas because <strong>of</strong> its complexity.Our proposed framework can be very helpful towardsthe understanding whether and how firms cansurvive purely as systems architects and integrators(particularly in many aerospace and automotive companiesthat do not actually fabricate the components—they only assemble them). 13 To succeed in such astrategy, companies must understand their system architectureand the ramifications <strong>of</strong> their subsystemsoutsourcing decisions on the eight domains outlined inthe framework; particularly, on their knowledge portfolio,organizational structure, system design and development,requirements cascading, and branding andmarketing strategies. Further research will be requiredto evaluate the framework’s effectiveness in this regard.Many <strong>of</strong> the observations made by Krishnan andUlrich [2001] regarding research opportunities withinthe product architecture realm remain and can be seenmore clearly through our proposed framework. In additionto help make the research landscape more clear, theframework has been useful in identifying new researchopportunities. For example, there is a general lack <strong>of</strong>empirical studies about how architectural decisions areactually made or how information that influences thearchitecture actually flows (e.g., how product requirementsare actually cascaded throughout the architecturehierarchy). Also, the following are new research questionswith respect to architectural benefit communications:How effective can branded modules be atcommunicating the benefits <strong>of</strong> new technology implementedinto existing platforms; how effective are theyat building brand equity [Sanchez, 1999]; and how canthe benefits <strong>of</strong> an entirely new product architecture becommunicated to the consumer? Furthermore, shouldthere be something that resembles “module planning”in the R&D department that resembles product portfolioplanning?Another avenue <strong>of</strong> future research could investigatethe effectiveness <strong>of</strong> contracts that are meant to guide thesymbiotic relationships <strong>of</strong> firms that must work togetherin a way that allows them to pr<strong>of</strong>it from developinga multiorganizational product system. Futureresearch could investigate how well contracts are ableto define roles and responsibilities between codependentfirms. Although contracts dictate roles and responsibilitiesfrom the “top,” the effectiveness <strong>of</strong> a singleormulti-organizational product system developmenteffort may be highly dependent on the cultures <strong>of</strong> thefirm(s). Future research could also investigate if andhow culture influences the design practices <strong>of</strong> the firm.Effective product architecture design maximizes theflexibility <strong>of</strong> product evolution while providing productperformance that delights customers for a price thatinduces them to buy and provides adequate pr<strong>of</strong>its forthe firm to reward shareholder investment. <strong>Architecture</strong>decisions are complex because <strong>of</strong> their broad implicationson the future performance <strong>of</strong> the firm. For thisreason, tools developed for product architects must bothbalance simplicity and rigor, and capture the relevantinformation so good decisions can be made [Little,1970]. In the context <strong>of</strong> product architecture design, weSystems Engineering DOI 10.1002/sys

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THE IMPLICATIONS OF PRODUCT ARCHITECTURE ON THE FIRM 137Luke Wissmann has a Bachelors in Industrial Engineering (1998) and a Masters in General Engineering(2000), both from the University <strong>of</strong> Illinois at Urbana-Champaign. He is currently working on a Ph.D. inthe Department <strong>of</strong> Industrial and Enterprise Systems also at UIUC. Mr. Wissmann has industry experiencewithin several industries obtained while working at Ford, 3M, and United Technologies. His researchinterests lie at the intersection between business and engineering, including product planning, productarchitecture as it relates to business, and the business <strong>of</strong> systems integration.Systems Engineering DOI 10.1002/sys